Published 4:00 am, Thursday, August 14, 1997

Visa U.S.A. one-upped rival MasterCard International yesterday when it announced that its member banks will assume all liability for lost or stolen debit and credit cards so long as card holders report the problem within two business days.

After that, the 46 million users of the Visa Check Card will be liable for a maximum of $50 of unauthorized charges. Two weeks ago, MasterCard trumpeted its own new consumer friendly rules. It granted its 16 million debit card users immunity from losses if they report lost or stolen cards within one day (under most circumstances) and $50 maximum liability after that.

Consumer groups were generally enthusiastic about Visa's new policies.

"It's a great day when card companies are competing to protect consumers the most rather than charge them higher fees," said Jon Golinger., consumer advocate for California Public Interest Research Group. "Visa has taken the lead in protecting consumers from fraud on both debit and credit cards."

Visa Chief Executive Carl Pascarella said, "Visa and its member banks are committed to providing the most secure, convenient and accepted payment products in the marketplace. At the same time, this new policy rewards consumers who are vigilant and prompt in reporting the loss, theft or unauthorized use of their cards."

He noted that Visa's initiatives "go well beyond consumer protections provided by government regulations." Banking statutes cap consumer liability for lost or stolen credit cards at $50. But potential liability for unauthorized debit card transactions is $500 between two and 60 days and potentially unlimited losses after that.

Visa's proposals, which will be adopted by more than 4,500 U.S. financial institutions by November, do more than cap consumer liability.

Related Stories

Visa said that all customers will get provisional credit within five business days of notification to make up for lost funds due to unauthorized transactions. Federal regulations require such credit in 20 days. Visa members also agreed not to mail unsolicited cards that can be used without first activating them by phone.

As it turns out, many banks already have adopted similar practices. Bank of America announced last week that it would not make its debit card customers pay anything to cover losses from stolen cards. This summer it also adopted a policy of providing provisional credit within 24 hours.

Consumers Union also applauded Visa's action but said it was insufficient to make debit cards secure. "Unlike a credit card, a loss with an unsecure debit card is instantly drained from your checking account," said Consumers Union attorney Gail Hillebrand. "Consumers may find themselves without a penny in their account and may face enormous bounced- check penalties as a result of theft, fraud or error."

Unlike credit card transactions, where consumers have a chance to review monthly statements and dispute and withhold payments, debit card purchases are immediately deducted from their accounts.

Visa said that card fraud is less than one-tenth of 1 percent of its $460 billion in annual U.S. transactions, and debit card fraud is a tiny portion of that fraction. But Consumers Union and others worry that debit cards are more easy to use fraudulently than ATM cards, which are protected by personal identification numbers.

Now Playing:

Debit cards are Visa's fastest-growing product. They are also the platform it plans to use for its next-generation smart cards. These pieces of plastic are embedded with electronic chips instead of magnetic stripes and can provide additional functions.

Even without built-in chips, debit card volume has jumped from $32 billion in 1995 to more than double that in the past 12 months. Visa accounts for about 85 percent of total U.S. debit card transactions.

Latest from the SFGATE homepage:

Click below for the top news from around the Bay Area and beyond. Sign up for our newsletters to be the first to learn about breaking news and more. Go to 'Sign In' and 'Manage Profile' at the top of the page.